Towards more due diligence in the supply chain

Background story: The majority of our blog posts deals with CSR topics; we write about the latest developments in this field and try to relate it to a company’s daily business. Our background stories have a different perspective: Here, we explain trends, scientific background and societal implications of corporate sustainability – sometimes with a personal touch.

Due diligence in the supply chain

Our partner EcoVadis recently hosted the Sustain event. EcoVadis unlocks the power of transparency in the supply chain, enabling buyers and suppliers to communicate on the results of a sustainability assessment through a collaborative platform. As such, EcoVadis offers a tool for sustainable procurement management, e.g. including social and environmental criteria within the supply chain. This topic has gained so much momentum over the past few years that it is now the object of legislation. We try to explain thisphenomenon in this blog article, while describing solutions for companies faced with such issues.

Lack of transparency in the supply chain with outsourced impacts

Outsourcing has been growing for the past two decades. According to Deloitte, “the last two decades have been a significant rise in offshoring to external service providers”[1], though a small portion of companies are bringing some outsourced functions back to their home country. In this sense, the environmental and social impacts of production are now still mainly located in the supply chain level. Some events showed that the risks still exist and that scandals impacted the whole supply chain.

In April 2013, the Rana Plaza building collapsed, leaving more than 1,100 casualties and thousands of people injured in Bangladesh[2]. This building housed five factories for the garment industry. This disaster was covered by the media and shed light on the fact that clients don’t know what happen in their supply chain, and that basic safety rules and laws are not applied there. According to the Guardian, “investigators say several factors contributed to the building’s collapse: it was overloaded with machines and generators, constructed on swampy land, and the owner added floors in violation of the original building plan”.[3]

The same year, Europe was stained by the scandal of horsemeat, where horsemeat was sold as beef, showing the lack of transparency within a globalized supply chain. Many other examples could be found in this sense, but our point here is that there is a need for companies to tackle somehow these issues in their supply chain, for the suppliers’ sakes as well as theirs and their clients. [4]

Legislation as a driver for companies to tackle these issues

After these scandals, governments decided to act and to boost companies. Here are a few developments from the past three years.

Since May 2015, companies responding to certain criteria need to publish a statement on the actions they take to prevent slavery and human trafficking, according to the UK Modern Slavery Act.

In the US, the California Transparency in Supply Chain Act, some companies need to disclose in their websites the company’s actions to prevent such abuses.

France is trying to do the same, the bill on due diligence is still in validation by the government instances[5].

In case of non-compliance, some actions can be taken. In any case, companies will suffer from brand-damage, pressure from stakeholders, potential lawsuits …

These developments show that working conditions can be at risk in the supply chain, and that client companies have the power to investigate and require some practices from their suppliers. How can they tackle such issues?

Due diligence in the supply chain: solutions

First we recommend companies to edict clear requirements and made commitments, in the shape of public policies and statements

Then, companies need to let their suppliers/subcontractors know these requirements, so that they can act accordingly.

Suppliers don’t have the same level of risk according to their location, activity or size. We suggest companies to proceed to a risk-mapping. According to the level of risks, actions can be taken.

For instance, suppliers can be asked to be evaluated on their sustainability management system, for instance through EcoVadis or other sustainability assessments platforms.

For suppliers with high-risk level, we recommend having regular audits there, on sustainability topics, made by third parties, and by some members of the companies.

Then, what is key is collaboration and transparency. It is important that buyers, who are in touch with suppliers on a daily basis, are aware of such requirements, to explain them and pass it over to the suppliers. In this sense, we suggest different tools and approaches: training of buyers, dedicated team to help buyers in this sense; business reviews between suppliers and buyers, supplier scorecard including such topics, …

Reaching to your supplier is one thing. Reaching to the supplier of your supplier is another thing. In this sense, we recommend the use of EcoVadis as it enables to cascade requirements in the supply chain. Indeed, clients have their suppliers rated on their sustainability management system, including on how the suppliers handle their supplier sustainability management. Then, if the suppliers improve their own sustainable procurement practices, companies already reach another level in their supply chain.

Finally, we think that collaboration and knowledge sharing is key to success. We advise companies to train their suppliers, raise awareness through handbooks and code of conduct, organize seminars etc.

Last but not least, partnership with a local NGOs can help address the issues on the field and have more visibility on what is happening in the high-risk zones.

We know that it is hard for companies to reach such levels of the supply chain. However, we hope that this articles gives inspiration to solve such complex issues. If you are interested in solutions and consulting services, please contact us at info@dfge.de or consult our EcoVadis webpage.